Market will revive itself, in time

KINGSLEY GUY SPECIAL CORRESPONDENT

August 22, 2007|KINGSLEY GUY SPECIAL CORRESPONDENT

South Florida is no stranger to real estate booms and busts.

In the 1920s, even swamp land was going for premium prices. A couple of disastrous hurricanes literally put a damper on the land speculation and housing boom. Then the stock market crash of 1929 and the ensuing Great Depression sent the region even deeper into the economic muck.

South Florida eventually recovered, but not until after World War II, when a revitalized national economy and the widespread use of air conditioning resulted in massive migration to the region.

It seems like only yesterday that the late comedian Red Buttons starred in TV commercials touting to seniors the benefits of living in Century Village.

Actually, Red's commercials ran three decades ago. The goal of the Century Village developers, aside from making lots of money, was to provide a retirement home in the sun that a New York City cab driver could afford by selling his medallion.

Middle class retirees from the Northeast and Midwest arrived in South Florida in droves, changing the region?s social, political and economic climate. Concurrent immigration from the Caribbean and Latin America added to the region's population and economic vitality.

South Florida real estate has had its ups and downs over the years, including a major price drop in the early 1990s. But for the most part, prices have climbed along with the population. South Floridians now pay about an 80 percent premium for housing when compared to the national average. Forget about buying a place in Century Village for $29,999. Those days are long gone.

Things tend to come in cycles, however, including hurricanes and housing booms and busts. The 1920s was a particularly active time for Atlantic storms, followed by a slowdown that lasted until the mid-1990s. Today, climatologists tell us, we are again in an active hurricane phase.

In an eerie throwback to the 1920's, Florida in 2004-05 was hit by a series of hurricanes, sending shockwaves through the economy and causing plenty of Floridians to once again ask whether it's worth the physical risk and financial price to remain in the state.

In another troubling similarity to the Roaring Twenties, the hurricanes have been followed by a global financial crisis ignited by speculative excess.

In 1929, speculation in stocks caused by too much leverage sparked an economic collapse throughout much of the world. Today, highly leveraged speculation in U.S. home mortgages has triggered a global economic emergency. It's doubtful we'll see another depression, but a recession in the United States is still a distinct possibility, despite last week's intercession by the Federal Reserve Board.

When housing prices were rising rapidly, money flowed freely into the "sub-prime lending market, where people with poor credit histories could get financing on a home with no money down and low introductory mortgage rates. Today, with home prices falling, foreclosures are on the rise and cheap credit has dried up as lenders in all areas of the economy reassess their risks.

Florida has been particularly hard hit, with the home sales rate the lowest in the country and foreclosures among the highest.

In economics, as in physics, actions are followed by reactions. The reactions following boom times are painful, but in a free-market economy, they are necessary to wring out the excesses and bring things back to a semblance of equilibrium.

Rest assured, the South Florida real estate market eventually will revive itself, although it will take time. There's only so much land available with South Florida's climate, and for millions of people, chancing a hurricane still beats shoveling snow, scraping windshields, and driving on icy roads.